Podcast Episode 148 Transcript

Episode 148: Cost Segregation And The Impact Of Tax Reform w/ Erik Oliver

folks who wants to save money and drive
to the bottom line in their portfolio
this week on the pre-real podcast we
have Erik Oliver from the Cost
Segregation Authority he walks us
through some course segregation uh tips
and tricks and some neat new things it
was really informative for me uh the 179
D the 45 L these are uh amazing tools in

the toolbox here and money that's
available for us to take advantage of
that most of us are not we're so damn
busy hustling and working to build our
portfolio we're not taking advantage of
all of these opportunities to save on
taxes and that's the best quickest
easiest cleanest way to drive Revenue
right is to optimize your current
portfolio not stack doors not stack
square footage is a time and a place for
that but it should be after you've
optimized it so this week please give it
a listen Erik Oliver tremendous
information really valuable stuff
are you ready to bring your real estate
game to the next level my name is James
prendamano I'm the CEO and founder of
pre-real
25 years I've closed over a billion
dollars in transactional real estate
each week a meeting with outstanding
investors High performing individuals
and Visionaries operating in the real
estate space these are the people that
are actually out there in the real
estate game right now in
this podcast aims at bringing anyone's
gain to the next
this is the pre-real podcast
welcome everyone to the show we're
joined today by Erik Oliver Erik is the
vice president of Business Development
with cost segregation Authority he holds
a bachelor of applied sciences in
accounting from Westminster he's got an
interesting background and we're going
to focus today folks on cost segregation
we're going to take it kind of from the
beginning and really start small with
what cost segregation is at its truest
form and we're going to work through
some of the changes that we've seen in
the cares act and how it can impact you
and and ways to optimize the portfolio
because that's what we're all here for
with that Erik thank you so much for
taking the time today yeah no glad to be
here James appreciate the opportunity
yeah man I appreciate you you getting on
we were talking uh before we started
recording in the The Green Room if you
will uh Erik as we all seem to be is
suffering from pretty bad allergies so I
appreciate appreciate you being a
trooper today and hanging in there with
us man yeah no problem hopefully I won't
cough my way through this I'll just hit
mute if I've got a cough or something I
apologize in advance all good man we're
here for your wisdom so let's Jump Right
In uh could you spend a minute or two on
your background for the audience just to
get a sense of who Erik is you were
living in Long Island you've now moved
out west you know where did this all
start for you yeah so just kind of
taking it back to my college days my my
background is in accounting so
um when I was in college I hated writing
papers and math always came somewhat
easy to me so I'm like okay how am I
what's the quickest way I can get out of
here and it was either Finance or
accounting so I got an accounting degree
I've never really used it got into sales
which took me to the east coast I was
born and raised in Salt Lake
um and took a sales position in Virginia
lived there for 12 12 to 13 years
um met my wife my wife's family was my
wife was born and raised Long Island New
York and so after doing sales I decided

to go work with her father her father
has a landscape business he's had for 30
years he was looking to retire and so
wanted to go up there learn the business
from him we were going to buy the
business
um things didn't work out he uh decided
he didn't want to retire after we had
been up there for five years and so we
decided to head out west so I would like
I said I was born and raised in Salt
Lake
um when I came out west didn't know what
I wanted to do
um was just looking online for different
jobs came across cost segregation didn't
even know what it was myself I had had
one rental property prior to that but
was unaware of what cost segregation was
started looking into it and I'm like wow
this is this is interesting stuff and
with my accounting degree it might not
be a bad occupation so took a job with
Casa Authority been doing this for seven
years now
um love what I do love learning about
real estate get to meet great mentors
throughout the country in terms of real
estate and accounting and so I really
love what I do now and and been able to
help people save money through cost
segregation on their taxes which has
been great so what part of Long Island
we in uh Patchogue Medford so right
right dab in the middle there got it I
should spend some time over in
Massapequa and like oh yeah okay very
good tacky push Pond Park
it's uh I loved Long Island I missed
I missed the pizza I missed the bagels
my wife will tell you I
some of the nicest people in the world
you know people in New York throughout
the country they get a bad rap as being
you know Brash and harsh but I'll tell
you what they're some of the most
genuine people in the country
um the people in New York and so I miss
miss a lot of that yeah man well uh
we'll send you some New York love
so Erik one of the things that
we were drawn to when we were
researching guests is your firm does
cost sag full stop and a number of uh
CPA firms and not that this isn't a
knock against them because it's not but
the reality of it is is cost segregation
is highly specialized uh it's something
that you hear thrown around quite a bit
but very few people really are experts
in it and we love the fact that your
firm does cost segregation it's not part
of 52 other services that you provide is
that is that accurate that is accurate
yeah so we just we've got three services
here at our company and that's
deliberate
um we want to partner with CPA firms and
investors across the country and so we
don't do tax returns here at our firm we
we will partner with CPAs and say hey
let us be the specialist when it comes
to this cost segregation you guys file
the tax returns you guys are the
specialists in that area but when it
comes to real estate and Taxation
um you know let us be the specialist and
I always look at it like you know your
CPAs are kind of like General
Practitioners
they they have to know a little bit
about a whole lot of different subjects
you know earn business income child tax
credits audits and they don't just it's
not that they're negligent they just
don't have the bandwidth to dive deep
into depreciation in real estate some
you know some CPAs will specialize in
real estate but most are kind of your
general practitioners and so that's
really where we come in partner with
them get them involved and say hey
you've got a client who owns real estate
is there an opportunity there for us to
use our expertise to save them some
money on their taxes and so most CPAs
are pretty open to uh letting us come in
and work with their clients in that
capacity
so I want the audience to think about
today's show through this lens
we've had a lot of investors on over the
years
and everybody's talking about how you
grow the portfolio right how do we add
doors how do we add square square feet
on the commercial side uh to drive to
the bottom line and I've had a few
really really sharp seasoned investors
on that talk about
we're not interested in adding doors
we're not interested in adding square
footage we're interested
first every year in optimizing the
portfolio the fastest easiest cleanest
most direct way to add to your bottom
line is to take what you already have
and make it more efficient
and cost segregation can play a big role
in driving to that bottom line so let's
start really small at its core what is
cost segregation what is depreciation
sure so
um let's start with depreciation so the
IRS allows you to depreciate your real
estate so real estate if you think about
a building every year you own that
building it becomes older and older and
in theory it's worth less and less now
that's not always the case with markets
and but the building itself the stucco
on the outside is worth less in year 10
than it is the first year you get it for
example so the IRS knows that these
buildings are going to deteriorate and
so they allow us to take a expense or a
depreciation expense every year against
our income so for residential units your
multi-family units those all get
depreciated over 27 and a half years
commercial units you know retail office
that gets depreciated over 39 years and
that makes sense you know a a
residential unit where you've got people
living in those units they're going to
deteriorate at a faster rate than an
office building that's open nine to five
so that's why you see the discrepancy
that you got 27 and a half versus 39
years
um just to make the math easy let's say
I buy a single family home for 275 000.
in theory I'm going to get a ten
thousand dollar write-off every year for
the next 27 and a half years you just
take that your building value and I I
kind of oversimplified you do have to
pull the land value out land is
non-depreciable so but if you've got a
building and the building is purchased
for 275 000 you take that divide it by
27 and a half years that's a ten
thousand dollar write-off every year
which is great that's why a lot of us
get into real estate is for some of
these tax benefits or one of the reasons
why but what if I'm not gonna I'm not
gonna own my building in 27 and a half
years from now I you know I've Got A
Five-Year Plan I'm going to fix it up
let it appreciate then I'm gonna sell it
um I want my deductions Now versus
spread out evenly over 27 and a half
years
and the way you do that is through an
engineering based study called cost
segregation where you actually go into
that building when I buy a single family
home
I'm not just buying the land and the
walls I'm also buying some appliances
I'm buying some concrete in my driveway
I'm buying some trees and some bushes
and some shrubs and some Mulch and some
countertops and flooring all those
things I mentioned the IRS says you
should depreciate those they don't last
27 and a half years you should
appreciate those at a faster rate
and so through a cost segregation study
a firm will come in and they will
identify the different assets within
your building that can be depreciated at
a faster rate and move those into
different buckets per se now there's a
number of reasons why you want to
accelerate depreciation there's time
value of money you know a dollar today
is worth more than a dollar twenty seven
and a half years from now there's uh
inflation is a Hot Topic you know
inflation is going up time value of
money so I want my as much of my
deductions that I can get I want them
now versus letting the IRS hold on to
these and so that's why
when you segregate your building into
different components it allows you to
front load or take that depreciation at
a faster rate
so
um let's dispel a few
rumors if we will out of the gate so you
you address the land one already
um can I depreciate a primary residence
no so Revenue generating properties so
yeah you're not allowed to depreciate
your primary residence second home
Maybe if you if you're smart with leases
and and you you write it up the right
way okay yes if it's set up the correct
way yes you can you just can't in theory
you can't spend more than 14 days a year
there
um otherwise it's considered a second
home which you cannot depreciate but
yeah it can definitely be set up a lot
of people will set up their second homes
they Airbnb while they're not there and
you can't take depreciation on those
okay so now let's say I had a big income
year
um for a non-related asset uh of course
this is all subject to the way your tax
returns are set up if they're s Corps
llc's flow screws
um but if I accelerated depreciation on
a building and I'm essentially writing
those losses off today I can use that to
offset earnings in other places correct
yep okay it doesn't have to be you know
you do a consec on this building it can
only offset income from this building it
it can it creates a passive deduction
that can offset any other passive
deduction you have in your portfolio
right so folks well there are some
active active deductions for Real Estate
professionals but for the most part it's
a passive deduction that can be used to
offset passive income from any other
source which which you know straight
line depreciation as Erik had said 39
years on Commercial 27 and a half on
rezzy that's what most most folks are
are doing but our first first exposure
to this where we put it in practice was
a big income event
um in a non-related business but it all
float flowed through with the bottom
line so we did a cost segregation study
and we were able to accelerate the
depreciation on different components
took a bigger loss and used that to
offset other income so folks this it's
not limited to the asset that you're
doing the cost seg study on there are
some really neat things you can do here
to offset income
the cares Act
a lot of uh changes came down with the
cares act for those who don't know it's
the I believe it's a coronavirus Aid
relief and Economic Security Act is that
right very good yes so uh in the cares
act there were some changes as far as
the amount of years you're allowed to
depreciate
your asset over correct
um not quite so let me just back up so
the cares act the big changes on the
cares act were some of those energy credits
we talked about so we'll we'll touch on
those here in a second with the there
was a few things that affected cost
segregation with the cares act being
able to carry back some of your
deductions but I think what you're
referring to James was the um
now I'm drawing a blank it was the um it
was the Donald Trump tax overhaul the uh
that was in 2017 okay

yeah the tax cuts and jobs act so with
the tax cuts and jobs act something came
out or about something called bonus
became more prevalent bonus depreciation
had been out for a number of years
before the tax cuts and jobs Act and the
government uses bonus depreciation kind
of as a lever to stimulate the economy
so if the economy is not doing well then
they'll increase bonus if it's doing
well they'll decrease bonus
When Donald Trump was President
obviously Donald Trump owns real estate
and so there were some changes made with
that tax cuts and jobs act that are very
important for Real Estate Investors and
that is that they change the way that
bonus was realized so prior to 2017 in
order to take advantage of bonus you had
to buy something brand new it couldn't
be an existing piece of equipment or an
existing building you would have to
build a brand new building
and it was 50 bonus at the time
um after the tax cuts and jobs act that
changed dramatically so the two things
that changed is one is it became a
hundred percent bonus
which was massive and two they added
five words white I mean it was pretty
slick the way they did it they added
five words to the tax code that said new
to you the taxpayer
so no longer had to be I I didn't have
to go out and buy a brand new bulldozer
I could go out and buy a used bulldozer
that used bulldozer is new to me the
taxpayer yeah and now I get to take
bonus on it so let's talk quickly about
how this impacts real estate so in the
past in order to take advantage of the
bonus you had to build a new fourplex
you couldn't buy an existing fourplex
with the changes to the tax cuts and
jobs act it allows you to now go buy an
existing fourplex
but remember that fourplex by nature is
a 27 and a half year asset
bonus only applies to assets that have a
useful life of 20 years or less so a lot
of your CPAs out there are like well you
can't take bonus on Real Estate because
real estate's a 27 and a half year asset
you know I'm reading my textbook here it
says in order to take bonus I've got to
have an asset of 20 years or less
what they don't realize is that if you
do a Cost Seg study
on your fourplex that you just purchased
we're going to come in and we're going
to identify all the five-year assets
things like carpets countertops cabinets
appliances ceiling fans garbage
disposals we're going to put a value to
all those components
those all have a useful life of 20 years
or or less so now they are eligible for
bonus and guess what it's not even 50
bonus remember it's a hundred percent
bonus and what that means for Real
Estate Investors is whatever value we
put to those five-year assets you get to
write off or depreciate 100 of those in
the first year
so you're taking a five-year asset that
normally gets split up over five years
which that's great because that's way
better than 27 and a half but now I'm
taking this five-year asset and I'm
depreciating it all in the first year
so let's give the folks a real world
scenario let's say um I'm a builder and
I have a construction company
um I want to go buy a piece of yellow
iron uh you know an excavator I want to
drop an excavator I go out and I spend
250 000 on this excavator I finance it
I'm not paying it off in full because
that's an important thing I think people
miss and
um I take this 250 000 piece of
equipment and I now can
my understanding of it and correct me if
I'm wrong because I'm certainly not an
expert on this I can take the full value
of that piece of equipment let's say I
put 10 down and I finance the balance
right so I'm only out of pocket 25 Grand
I've got a payment that's three four
thousand a month I could take a full 250
000 deduction that year
correct
yep you hit on the head that's wow
what's that bonus now one thing to be
aware of is a hundred percent bonus you
would have had to buy that piece of
equipment that excavator between
927 of 17 so September 27th of 17
and 12 31 of 2022 so the end of last
year that was that hundred percent
Golden Era I call it because you could
take like you said you finance it so
you're only coming out of pocket 25 000
but you're getting 100 or 250 000
deduction which at 250 000 deduction at
a 30 tax bracket you know do the math on
that that's you know close to a hundred
thousand dollars in tax savings if you
can absorb it so that's that was
anything within that time window
starting in 2023 if I go by that same
excavator for 250 000 instead of getting
a hundred percent bonus
I'm now eligible for eighty percent so
we have what we call a phase out period
where bonus is phasing out 20 every year
starting this year until 2027 when it
phases out to zero so this year I would
get you know I don't I can't do the math
in my head what's eighty percent of 250
uh 160 plus another 40. so that's two
hundred thousand so you get a 200 000
deduction versus the full 250 that extra
fifty thousand that are that extra 20
that's left over that just gets spread
out over the useful life of the asset
but that goes back to a straight line
calculation for the balance
correct yeah depending on the asset it
may or may not be straight line but yes
you spread it out evenly not evenly you
spread it out over the useful life for
the next couple years so if it let's say
a bulldozer is a 15-year asset you would
get eighty percent in year one the other
20 gets spread out over the next 14
years now we used a piece of equipment
in in this scenario does it apply to
real estate proper yeah yeah let me give
you a quick example on real estate so
let's say you buy a million dollar aplex
let's say we determine the land is worth
two hundred thousand so now you've got
800 000 of what we call depreciable
basis
you do a Cost Seg study on that eight
hundred thousand dollar building
on a multi-family we usually find
somewhere around 30 percent of the
Assets in that building are short-term
assets
so thirty percent of eight hundred
thousand would be two hundred and forty
thousand dollars worth of short-term
assets again that's us coming in saying
the carpet's worth twenty thousand
driveways worth eighty thousand we're
going to come up to somewhere around two
hundred and forty thousand or thirty
percent of your building
that 240 000 is all in CL in class life
less than 20 years which means it's all
eligible for bonus so if you bought that
building this year in 2023 you're gonna
get eighty percent of 240 000 that you
get to write off in the first year
so eighty percent of 240 uh I can tell
you real quick 240 times 0.8 that's a
hundred ninety two thousand dollar
write-off in the first year
now remember a million dollar building
if you put twenty percent down you're
you know you're you're out of pocket 200
000 but you're getting a hundred ninety
two thousand dollar write-off
um for that building in year one which
is amazing
I I want to hit the high high level
points of this one more time because
it's every time I talk about this stuff
I get excited because we forget and when
when you're in the game you forget these
things and and you're you're moving so
damn fast trying to manage and grow a
portfolio that you leave these things to
the professionals but if you're not
specifically engaging with a cost seg
guy chances are that this is not getting
the attention that it should get folks
so again in this new window that we're
in it how long does this window last
this is one year each 20 yeah so the 80
bonus lasts through the end of this year
so any properties that you buy and place
into service in 2023 they're eligible
for 80 so on a million dollar building
assuming 20 for land and approximately
30 percent for the short-term assets and
these are are in the range folks of of
the Norms here
you're able to accelerate a loss on the
year that you made this acquisition of a
hundred and ninety two thousand dollars
again ways to optimize and drive Revenue
to that bottom line it it's not about
stacking doors and stack and square
footage it's about optimizing first and
I think we're doing ourselves a
tremendous Injustice we all work so damn
hard for our money if we're not
exploring all of these Avenues
thoroughly with an expert that
understands it far better than we do
yeah and I'll just add to that James you
hit it on the head you know I I'm trying
to remember the gentleman I talked to
but he he put it perfectly he said
as investors we're always looking to
play offense we're always looking to go
by the next door what we lose focus of
is playing defense and all that money
that we've earned and so how do we
maximize it and one way to maximize that
money we've earned is by reducing our
tax bill and it's something that a lot
of people like you said we're so focused
on playing offense so we forget hey if I
just play a little bit of Defense you
know it doesn't matter if the other if
you score 200 points in a basketball
game if the other team scores 201 you've
lost yeah you've got to play some
defense here and we oftentimes will lose
focus on and you've hit it on the head I
I appreciate you bringing that to
to their attention because that is
something that goes under utilized quite
often is hey just go buy another
building let's go buy let's go build
let's go do this it's like wait
we can make just as much money with the
stuff we have if we could just reduce
our tax bill we've got all this property
but we've never done a cost Segragation and
if I can create a hundred thousand
dollars in tax savings that's just as
good as go buying you know x amount of
doors so it's it's far better brother
because you don't have the extra calls
the extra maintenance the extra payrolls
the extra insurance the extra headaches
right right so we're so focused on on
you know peddling the bike and and
moving this thing forward that we forget
there are ways to do this so uh
especially today with with all the
craziness out there I think we have to
slow it down enough to pay more
attention I know we are for sure with
with our existing Holdings so let's
let's jump real quick and talk about the
179 D and the 45 L now those did come
from the cares act correct yeah well
some changes to those did come from the
cares act yes okay can you talk the
audience through what these benefits are
yeah so
um the 179 D let's jump into the at
first the 179 D is a deduction
that's eligible for developers who are
developing new commercial real estate
so if you go buy it if you go buy an
existing building it wouldn't apply to
you but if you build or expand an
existing commercial space or excuse me
if you build yeah or expand an existing
commercial space do tenant improvements
you may be eligible for a portion or all
of this deduction now what this
deduction is is currently for the 2022
tax year I'll talk about that because
that's kind of the Still Still where we
are in terms of tax timeline for 2022 it
was a dollar 88 per square foot
of a deduction that you may be eligible
for if you're building that you
constructed your commercial building is
energy efficient now you do have to have
a third party come out they do some
modeling they'll look at the windows
they'll look at the insulation
they'll look at the HVAC the lighting if
they determine your building is energy
efficient you may be eligible for that
dollar 88 per square foot as a deduction
now the nice thing about that deduction
is it just comes off of the the basis of
your building and you never have to
recapture that upon sell
so one of the most underutilized tax
deductions for Real Estate Investors
that I'm aware of is that 179 D now just
keep in mind it is for new construction
or tenant improvements on the commercial
side
it's for tenant improvements on new only
or
the tenant Improvement improve an
existing building so if I buy let's say
I buy an office building and I go in and
I put in a new HVAC a new lighting I may
be eligible for a portion of that dollar
88 per square foot wow
wow
so okay again I want to make sure I'm
capturing this and giving it back to the
audience
let's say we're going to build a 50 000
square foot building new we're going to
build a retail Center an office building
whatever it is we would be we do this
study and we would be eligible for what
would amount to ninety four thousand
dollars
ninety four thousand dollar deduction so
remember that's a deduction of your
taxable income
um and
the nice thing is you can actually go
back so a lot of people were unaware a
lot of CPAs were unaware of these
deductions in the past you can actually
go back to anything you've built since
2005
do the study today or the certification
today
take those deductions on your 2022 tax
return
without having to amend any prior years
which is great there's some forms you
fill out that says hey we missed this
deduction we're going to take it now
here are the forms and you're able to
take those deductions on your current
tax return
from 2005. yeah anything that was built
from 2005 forward wow

okay that's the 179 D correct okay what

about the 45 l so the 45 L is a tax
provision that allows it's a similar
program but it's a credit versus a
deduction so I just want to make that
distinction remember a deduction comes
off your taxable income
a credit comes off your actual tax bill
so it's a little bit more powerful in
terms of if I've got a 75 000 credit
versus a seventy five thousand dollar
deduction I want the 75 000 credit all
day long sure right so this is a credit
that comes off of your tax bill for the
development construction of energy
efficient residential units so the IRS
determines a residential unit by four
criteria you've got to have a place to
eat sleep prepare food and use the
restroom so whether that's a single
family home whether that's student
housing senior housing
um
if it meets that criteria and it's
considered energy efficient again you do
have to have a third party come certify
it we're going to be looking at stuff
again like the HVAC the insulation in
the walls the windows all that stuff if
it meets the certain qualifications
you're eligible for a two thousand
dollar credit per dwelling unit
in 2022 that number jumps to 2500 for
stuff put in service in 2023 but two
thousand dollar credit per unit so if I
build a four Plex
my four Plex is energy efficient
according to IRS standards and we have
somebody come in and certify it I'm
going to receive a certificate that
allows me to take an eight thousand
dollar credit
against my taxes for 2022.
I am floored here
so let's say you're you're building a
scale you're putting up a hundred units
and your tax bill for that year is six
hundred thousand dollars
you would get a two hundred thousand
dollar credit on that six hundred
thousand correct yep instead of paying
600 you're paying 400 because the units
you built were energy efficient now I
should add the 45l program it doesn't
allow you to go back as far as 2005
because you would have to amend your tax
return so you can only go back three
years on this through that Amendment
window where the IRS allows you to
change your returns but I can't tell you
James how many times I've met with large
developers who are building three four
five hundred units a year and have never
heard of the 45l tax credit and if they
don't take advantage of it within that
three-year window it's gone there's no
going back and reclaiming those
deductions or those credits so
um very important stuff I think
I don't understand why it's so
unutilized the only thing I could think
is the IRS did allow some of these
programs to expire and then at the end
of the year they would reinstate it so
there was some confusion but
um two of the most underutilized credits
and deduction 179 D 45 L the good news
is with the cares act with the um
with the inflation reduction act at the
end of last year the 179 D has been made
permanent so that program will be around
for a while and it is indexed for
inflation so the deduction will continue
to go up so I mentioned a dollar 88 per
square foot for 2022 that number
actually goes up to two dollars and
fifty cents all the way up to five
dollars for 2023 on a sliding scale
depending on how energy efficient your
building is
this is remarkable stuff yeah so and
then the 45 allies I mentioned goes from
2000 up to 2500 so they are indexed for
inflation but um powerful stuff that
gets missed quite often for Real Estate
Investors or developers and you know
that's why we're here at least that's
why I'm here we started this show
for this purpose to be able to take the
important stuff with experts and deliver
it to people that could put it into
practice to to continue to smash in
their portfolio like folks 179 D write
it down 179 D 45 L get on the horn with
your accountants get on the horn with
Cost Seg Specialists and let's start
taking advantage of some of these
opportunities here that are at our
fingertips I've had a lot of people on
this show and
I think maybe one over the last
few years has even referenced something
along these lines so I mean there are
tools out there that are available to us
and at the end of the day as
entrepreneurs it's our job to make sure
that our professionals are turning over
every stone possible to make these
things available to us so Erik can you
talk a little bit about the company uh
are there only certain States you
operate in or if someone someone wants
to now take the step right how do we get
engaged what do we do
so um so we're headquartered out of Salt
Lake City Utah we do operate in all 50
states we do studies in all 50 states
um always get an analysis done
beforehand most costly companies most
energy credit companies will do an
analysis beforehand so for example
you're building a hundred units I would
say hey James send me the the blueprints
let me take a look at them and I can
pretty accurately tell you whether or
not you're going to qualify for these
Credits based off the information in
those prints at that point if you do
qualify you would engage us we do we
would come out look at the property
identify the different units that are
out there that qualify
same thing on the Cost Seg side the IRS
does require that we do a site visit
um
once that site visits done we're going
to provide you and you to and your CPA
the either the certificate or the report
to be able to take advantage of these
deductions I should add on the cost seg
side as well always get an analysis done
most companies do those analysis we do
them for free you tell us hey this is
the address this is what I paid for it
this is how long I've owned it this is
the type of building it is
within 24 to 48 hours I can come back to
you James and say okay you bought an
apartment building in 2017 we think and
you bought it for three million dollars
we're going to give you a conservative
amount of at least a you know a 400 000
increase in depreciation in the first
year
and can you use that we'll get your CPA
on the on the phone you know your CPA we
want to partner with your CPA they don't
they don't have the bandwidth to to keep
on top of all these different programs
and so we'll partner with them and say
hey we can create a four hundred
thousand dollar deductions for James but
does James need it you know does he have
the income to offset that deduction oh
oh no he doesn't okay that's fine we'll
just do it next year oh James has some
carryover from last year on a Cost Seg
study he did so he doesn't need any
additional deductions so we'll we'll
partner with your CPA and strategize how
to maximize the savings because you want
to use these deductions in these credits
in years where you're in those High tax
brackets
and so you know we don't see the full
tax picture and so we want to get your
CPA on the phone and say okay
you know what does what does James
income looking like this year what kind
of other deductions does James have and
can he use these and is this the right
time and so that's kind of the process
so this is uh I'm playing these
conversations out in my in my head right
um most of us have our goal list or our
checklist if we're working on
entitlements for a new project
um what you know did we get this
entitled at this one was this done was
that completed this has got to go on
your list now folks right because I can
hear the architect and engineer saying
well we didn't design for the 45l uh
like we didn't know what the situation
that's a tax thing and I can hear the
tax person after the fact right saying
you had to weave this into your design
we're not Architects and Engineers right
so like we've got to close the gap on
this stuff here folks and make sure that
our professionals are designing this
stuff and measure twice cut once if if
you're if you're in pre-dev and you're
designing this thing anyway I'd be
really interested in learning what the
bar is how much further do you have to
go to be eligible for those benefits you
know if you have to spend three million
to you know get a million dollar
deduction this doesn't make a whole hell
of a lot of sense but right it's within
the the norms and most energy codes
locally now have really really really
significantly increased so I would think
that you're probably
at least in the within Striking Distance
of what the requirements are to qualify
anyway
but I'd be interested in in running that
down and learning more about it
um you hit it on the head jobs we'll get
with people who are developing projects
and they'll say okay here's my initial
set of prints where are we at we're like
well
your building needs to be at 50 Energy
Efficiency you're at 47 but if you just
up the BTUs on your HVAC or your heating
system or what have you
by x amount then we can get you past
that threshold and get you those you
know two thousand dollar credit per unit
and they're like okay well it's only
going to cost me an extra 500 bucks per
unit if I get a little higher efficiency
unit
do I pay 500 to get a 2 000 credit yeah
you do that all day long and so we're
happy to jump on calls and strategize
pre-build like you said to determine how
close are we and you hit it on the head
most municipalities across the country
and the materials that are out there in
terms of building materials are so
energy efficient that it's kind of hard
not to qualify for this stuff and you're
always very close in Striking Distance
as you mentioned to qualify and so let's
make sure we don't you know Miss that
opportunity just to up our HVAC unit by
one percent you know efficiency to be
able to capture those credits or what
have you so great Point wow so you're
you're able to do this in all 50 states
I think you had said yeah yep okay so uh
Erik if someone wants to get going how
do we find you yeah so the best place to
find us is on our website so our website
is just
www.costsegauthority.com

and from that website you can request a
benefit analysis give us a little bit of
information we'll get back to you with
some numbers uh my contact information's
on there if you want to give me a call
and strategize and talk about you know
your unique situation we're happy to um
to do that okay so as always all the
links and information will be below uh
folks Before I Let You Go Erik is there
any other high-level things here that
we're missing any other layups we should
lay out there for the audience you know
there is one other thing we should
probably talk about
um and I won't get too far in the weeds
because it can get quite technical but
one of the benefits of doing a cost
segregation study is we actually are not
only saving money up front but when you
sell that asset we're able to create a
permanent tax savings upon sale
it's all kind of back into this analogy
because I think it makes sense from a
high level but if you buy a building for
a million dollars James and you sell
that building five years later for two
million
when the IRS finds out about that
transaction they're going to say you had
a million dollars of gain you bought it
for a million you sold it for 2 million
and they're going to tax you on all that
gain
the problem with that is because you
didn't do a Cost Seg study you're
unintentionally telling the IRS that
yeah my land is worth double I bought it
for a million sold it for 2 million my
walls are worth double
but my dirty nasty carpet in my aplex is
being sold for double what I paid for it
and it shouldn't be that way your carpet
shouldn't be sold for more than you paid
for but because you haven't broken your
carpet out of that transaction
excuse me
because you haven't broken the carpet
out everything's lumped together as that
one building there's no way for you to
not pay tax on your carpet but when you
do a Cost Seg study carpet actually this
is a good example carpet's a five-year
asset so what is the book value of your
carpet in that example when you've owned
it for five years
zero has no value according to the IRS
so why are you selling it for double
what you paid for it and paying tax on
that gain you shouldn't be so that's one
of the added benefits of doing a Cost Seg
study when you sell the asset you can
allocate your sales price to the right
things not allocate it to your dirty
nasty carpet so you would be able to
actually pull those pieces out of the
taxable proceeds
yes yes in theory what you're doing is
you're taking your deduction at a high
level so you're taking your deduction
when I bought this million dollar
building and did a Cost Seg study I took my
deductions at 37 percent
ordinary income rate when I sell my
building I'm going to pay some of those
back
in the form of recapture and capital
gains but recapture caps out at 25
percent and your capital gain caps out
at 20 so take your deduction at a high
rate pay back a portion of it at a lower
rate at a future date and save the
spread and that's really
cost segregation
sales price allocation all that in a
nutshell take it at a high rate pay back
some of it at a lower rate at a future
date save the spread so I just wanted to
make that point because a lot of CPAs
will say Erik this is just a timing
issue if you take these deductions up
front you just got to pay them all back
in the form of capital gains on the back
end I'm like yeah there's some truth to
that but I'm paying them back at 20
percent I took them at 37 percent and
I'm not even paying it all back because
guess what I'm not paying capital gains
on my dirty carpet because I've owned it
for five years and it's a five-year
asset so that's when the light goes off
all I have to say to a CPA is you're
telling me you're selling your carpet
for double what you paid for it
and then they'll let they'll sit there
and think and they'll go well damn
you're right I am selling the carpet for
double what I pay for that doesn't make
sense and so that's where we can start
the conversation and say hey we
shouldn't be allocating our sales price
to the carpet you should allocate that
to the building or the walls but
certainly not the carpet uh this has
been a fascinating chat Erik thank you
for for kind of gutting through it I
know you're not feeling 100 Oh no you're
good man this is tremendous information
folks Erik Oliver cost segregation
Authority I really appreciate you thank
you very much for joining us yeah no
thank you for having me this was an
absolute absolute pleasure always
excited to deliver ways for the audience
to to optimize that bottom line thank
you for joining us folks as always
please stay safe